Recently P&G has been promoting a new line of Downy fabric softener called Simple Pleasures. This is a premium product compared to their regular Downy line and it offers at least five different scent choices. On top of that Downy brand is running a contest to generate more scents.

How many Downy scents does the market need or can support?

Brands have been competing for the shelf space and wallet share of customers by expanding their product line both vertically and horizontally. The reasoning is finding every niche and filling it with a version at a price customers are willing to pay. That is the reason a typical supermarket stocks 30,000 to 40,000 SKUs. That is the reason you see raspberry, strawberry, key lime pie, vanilla and all sorts of yogurts. While conventional wisdom may say to the brand managers to keep expanding, data show otherwise:

Customers do not value different variations (colors, scent, flavors)within the same product line differently

Increasing products horizontally (color, scent, flavors) do not result in increase in market share or profits

In an NPR story on Walmart earnings report, they interviewed a few customers shopping at a Walmart. One of them said,

Ms. HAVENER: Do we really need to carry 19 different tackle boxes, or do we need to carry six different tackle boxes? And were so really looking at clarity of offering.

This is one data point, but the broader story line is Walmart has been systematically reducing SKUs, decluttering shelves and pushing back on manufacturers on number of SKUs they want to stock. Walmart is the leader in retail market share and it is by no means alone in pruning shelves. Retailers like Walgreens and those in UK are doing exactly the same. Retailers, especially Walmart, are known for religiously tracking revenue per square feet (it is actually per cubic feet) of retail space. All the retails space and shelf space may be sunk cost, but there is an opportunity cost associated with every SKU they decide to stock. Retailers are finding that customers value fewer options more than proliferation and the reduced inventory helps with profits when sales are down. So why are we seeing increase not decrease in SKUs from brands?

When P&G’s customers were trading down to private labels, P&G responded by vertical extension of its product lines like Tide Basic and Tide Ultra. As a multi price point strategy to keep customers within the brand family that is the right approach. But I am not convinced with their horizontal line extension.

When a brand is already $1 billion in annual revenue (P&G has at least dozen of them) is product proliferation the only way to find growth? Given the pressure from channels and the data showing otherwise why is P&G flooding the market with a product that differs only in the scent but otherwise has no functional utility to the customer?

P&G is arguably the best in class data driven and customer driven marketer, not just in CPG space but across the entire brand space. May be Google edges them out but that is another story. What are they seeing that the academic researchers and retailers are not?